Writing in a note to clients published on Tuesday, Samuel Tombs, Pantheon’s chief UK economist said that following the rally that has taken the pound above 1.40 against the dollar, that he now does “not see scope for a major shift in sterling this year.”

That’s down to the fact that markets have now largely priced in any possible Brexit good news – which is in the eyes of the market a soft Brexit – and sterling has appreciated accordingly. Now that’s out of the way, the pound will plod along for the rest of the year.

“We see sterling slipping back to about $US1.38 by mid-2018, as the pace of monetary tightening in the U.S. exceeds investors’ expectations. But we expect sterling to rise against the euro gradually this year, ending 2018 at about €1.20, as the Eurozone economy starts to disappoint investors very optimistic expectations.”

“Our third chart shows that sterling now is $US0.15 above the $US1.25 level implied by its relationship in the first half of this decade, with expectations for the difference between overnight interest rates in the U.S. and the U.K. over the next two years. The picture looks similar if expectations for interest rates over a longer period are examined.”

Here’s the chart mentioned above:

Pantheon Macroeconomics

Sterling has gained several per cent against the dollar in just a few weeks, continuing the strong performance it saw towards the end of 2017.

Sterling, in fact, is the strongest performer in the G10 basket of major currencies over the past six months when compared to the US dollar.

However, Tombs argues that the recent rally is “a story of genuine sterling strength too.” He points to the fact that “sterling hit a seven-month high against the euro last week and it has appreciated against nearly every other major currency.”